Australians will face only marginal price increases to their home and ­vehicle policies in the new financial year as fewer claims, plummeting reinsurance costs and increased competition temper the cost of premium hikes.

Insurance Australia Group
chief executive Mike Wilkins said Australian consumers will field “very low", ­single-digit percentage increases to their policies in fiscal 2015 – a reprieve from the hefty hikes from two years ago after a series of devastating natural ­disasters skyrocketed premium costs.

“We’ve just not seen any inflation come through for . . . claims, the cost of repairing a vehicle, isn’t going up," Mr Wilkins said. “As a result, we don’t need to pass [increases] on and we call out very low, single-digit movements."

His comments came after IAG, which commands insurance brands such as NRMA and CGU, recorded a 59 per cent rise in profit to $1.23 billion for the year to June. The company posted its fattest full-year insurance profit margin since its public listing in 2000 of 18.3 per cent.

AFR
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The group’s gross written premium rose 3 per cent to hit $9.8 billion for the year. Investors will pocket a 26¢-a-share dividend for the second half and 39¢ for the year – an 8.3 per cent increase in full-year payout from 2013, and ahead of consensus expectations of around 35¢ a share.

Tyndall Investment Management, one of IAG’s top 10 investors, said the company had produced a “very solid result". “It shows that they’ve managed the company in a very conservative manner," Jason Kim, portfolio ­manager at Tyndall, said.

The company is forecasting a higher revenue guidance of 17 per cent to 20 per cent for fiscal 2015, largely as a result of the Wesfarmers buy, but warned of slowing premium growth as expense pressures such as reinsurance costs ease.Graphic

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In May, IAG flagged that it was overhauling its operating model in Australia as it absorbed the Wesfarmers deal. The group’s new model will span three divisions – personal insurance, commercial insurance and enterprise operations. “They’re very well-positioned to ­benefit from the acquisition – it gives them greater scale," Mr Kim said.

Job cuts at IAG will be on the cards as the company continues integrating the Wesfarmers buy into its overall ­business. But Mr Wilkins said IAG had implemented a hiring freeze and was looking to redeploy staff affected by the takeover. “We will let natural attrition take its course," he added.

Broker Deutsche Bank said the ­market should be “comfortable" with IAG’s overall result, which was aided by a lower tax rate.“The market will like the better-than-expected final dividend, but [this] will be balanced against a softer growth outlook," Deutsche Bank said.

Credit Suisse analyst Andrew Adams said IAG’s guidance implied “flattish" gross written premium growth with some margin pressure, which is not dissimilar to the company’s main competitor,
Suncorp
. The key question for IAG was how fast premium rates could fall and their impact on profit margins, Mr Adams said.

IAG shares have risen around 6.6 per cent in the past 12 months, compared with the 9.2 per cent gains of the ­benchmark S&P/ASX 200 Index. IAG’s shares closed 0.48 per cent higher to $6.29 on Tuesday.